Public Markets: IPO Corrections

Mike Hofman was previously editor of Inc.com and a deputy editor at Inc. magazine, which he joined in 1996. The site was nominated for a National Magazine Award for Digital Media in 2010, and was named the best business website by Folio Magazine. In 2006, Hofman was part of a team of writers nominated for a Webby Award for best business blog. He lives in New York City.

Nervous CEOs and investors make the market for initial public offerings one of the least pleasant places to be these days. You might think this past summer's correction will lead to a prolonged malaise in the market. Not so, says William Smith, an analyst at the Connecticut-based Renaissance Capital Corp., an institutional-research firm. Smith and others agree that, despite the headline-grabbing antics of Netscape wanna-bes, today's market is not driven by young high-tech companies, whose stocks sagged during the 1983 correction. Two decades ago, high-tech and emerging-growth stocks accounted for as much as 75% of the IPO pipeline, Smith reports, a number that is 33% now. "There's more diversity today," he says, "and the firms are more substantial." Smith predicts that the 1996 correction will be relatively less painful. "It will be a few months until this cycle washes out, but people are a bit more sophisticated today, and they'll pop right back into it."